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Divergence, Wage-Gap and Geography

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  • Frederic Andres

Abstract

We develop a geographic growth model where nominal wages are allowed to diverge between the two considered countries. Removing the standard assumption entailing that both countries always own a traditional sector, we argue that, as trade gets freer, the traditional sector of one country might cease to exist so that wages increase: it gives rise to an additional dispersion force independent of trade costs. Hence, the core-periphery outcome might never be reached, which contradicts previous literature’s results. We also question a hallmark of the literature since we argue that full agglomeration of firms might actually lead to slower growth for both countries.

Suggested Citation

  • Frederic Andres, 2006. "Divergence, Wage-Gap and Geography," Economie Internationale, CEPII research center, issue 108, pages 83-112.
  • Handle: RePEc:cii:cepiei:2006-4td
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    File URL: http://www.cepii.fr/IE/rev108/rev108d.htm
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    More about this item

    Keywords

    Wage differential; new economic geography; endogenous growth; knowledge spillovers;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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